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Wealth Beat News > Small Business > The Importance Of Planning To Fail
Small Business

The Importance Of Planning To Fail

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Last updated: 2023/12/05 at 5:31 PM
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Antoine J Grant, Owner & CEO of HomeThreads.

Contents
He had reason to worry.How can you prepare?The same goes for smaller risks.

Several months before the spectacular collapse of AIG, senior executive Joe Cassano told his peers, “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those [credit default swap] transactions.”

Famous last words. Business history is littered with statements like these, spoken by CEOs and other high-ranking executives who simply didn’t see it coming.

Compare that naivete with the approach of Jeff Bezos, founder of Amazon. He caused a stir when word leaked that he had told employees, “Amazon is not too big to fail… In fact, I predict one day Amazon will fail” (emphasis added). This acknowledgement is rare among CEOs, but it’s not by any means a white flag. In fact, it’s indicative of shrewdness—the same kind that helped Bezos build one of the most successful and agile companies in the world.

Bezos went on to state that his goal was to delay Amazon’s inevitable decline for as long as possible. In his view, the best way to preserve success is to focus on customers and what they want, rather than focusing on the company’s internal operations. He focuses, in other words, on a key risk factor for many companies: the fickleness and rising sophistication of online shoppers.

He had reason to worry.

Few remember the Amazon of yesteryear—the humble bookseller that tiptoed into other retail products and then took retail by storm with its now dizzying array of retail options. Today, you can buy a book on Amazon, sure, but you can also buy electronics direct from manufacturers in China and have your groceries delivered in a couple of hours.

For most entities, after maturity comes decline. That’s just the nature of the business life cycle. But failure can happen at any point in the growth process. Many companies end up in distress, at times temporarily and at other times catastrophically. A founder’s natural tendency to escalate commitments—meaning the desire to keep doubling down after already pouring so much into their life’s work—can make these difficult situations even tougher.

That’s why it helps to start worrying about the possibility of distress well ahead of time and at the earliest stages of the business life cycle.

How can you prepare?

By planning for the reality that your company could come to a situation of unceasing pressure, you can develop (before you need them!) a set of coping mechanisms to offset the relevant risks.

Scenario planning is a formal process for codifying these possibilities. You could think of it as the more involved and sophisticated cousin of contingency planning: instead of considering the possibility of a specific event occurring, you’re considering possible broad-strokes changes to your business and competitive environment.

For example, instead of considering what you would do if a key competitor lowered prices, you could consider the potential disruptive forces in your space.

Of course, formal scenario planning is an involved process, and it can take time and planning to implement. But it’s one that has been used to great effect by companies like Shell Oil, which not only remained profitable through the 1970s oil crisis but was prepared for a fall in oil prices in the 1980s. The latter propelled Shell from among the smallest of the international oil companies to the second largest.

The same goes for smaller risks.

You can apply the same kind of thinking to smaller issues and decisions. What are your decision criteria for continuing or stopping investment in a new product line, marketing effort, technology build, etc.? What will you do if a key customer group stops paying? How would you handle the loss of a key employee?

Especially in the early days, these types of challenges can weaken a company to the point of failure. Don’t overlook them or rely on wishful thinking to avoid them: plan for them, and plan for the possibility of failure. I believe you’ll find that, as a result, the chances of failure will fall.

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?

Read the full article here

News December 5, 2023 December 5, 2023
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